[ClassicSpiderman]

http://www.atimes.com/atimes/Middle_East/HC10Ak01.html

$this->bbcode_second_pass_quote('', 'T')he US could print endless quantities of dollars to pay for foreign imports of Toyotas, Hondas, BMWs or other goods in a system in which the trading partners of the United States, holding paper dollars for their exports, feared a dollar collapse enough to continue to support the dollar by buying US Treasury bonds and bills. In fact in the 30 years since abandoning gold exchange for paper dollars, the US dollars in reserve have risen by a whopping 2,500%, and the amount grows at double-digit rates today.

[frankthetank]

I read this article a few days ago. Very interesting history the author goes into.

If you mess with the petrol dollar, your going to get burned.

[nth]

The main reason US$ is being propped up is that US has higher rates than these other G7 countries. Once these other G7 are giving better rates than US, US will fall.

Another reason is that US still has several key technology that other countries want. Especially, China, they want a lot of high tech stuff. Once they get those stuff, they may rethink their US$ strategy.

[ClassicSpiderman]

$this->bbcode_second_pass_quote('nth', 'T')he main reason US$ is being propped up is that US has higher rates than these other G7 countries. Once these other G7 are giving better rates than US, US will fall.

Another reason is that US still has several key technology that other countries want. Especially, China, they want a lot of high tech stuff. Once they get those stuff, they may rethink their US$ strategy.

[nth]

$this->bbcode_second_pass_quote('ClassicSpiderman', '
')If I could just play Devil's Advocate here...

I've always wondered why the US chooses to not let it's dollar collapse. If foreigners hold most of the US debt, wouldn't it be in the interest of the US government out of pure self-interest to let the dollar slide really low (to say 25 cents Canadian) and just tell the other countries holding US debt "too bad so sad" ?

A depressed US dollar would do wonders for it's export industry as well. And it would hurt other countries (especially India & China) because their meal ticket comes from their trade surplus with the US. Even if the other countries protested by disallowing US imports, the US trade deficit would shrink down to zero anyhow.

The only reason I can see why the US government and industry want a high dollar in spite of it's huge trade deficit is to have access to energy on the world market. It would be a completely different scenario is the US could produce most if not all of its energy needs. Instead, the US has to import 60% of it's energy. The US might even achieve full employment if it had a really low dollar but American workers would be paying $10 a gallon for gas and $8 for a loaf of bread.

[DantesPeak]

The US could remain as a reserve currency, but will not remain a currency of value.

Most international economic and financial systems are based on the US dollar, so a minor change here or there would not make much difference - at first. However since the US dollar is almost universally used now, any move away will diminish its use.

The fact that petrodollars are recirculating back into the US faster than ever back to the US does not mean it will retain its value. In fact, the faster recirculation is a sign of accelerating inflation in US terms. The US current account deficit has a strong relationship to the cost of energy imports. Higher energy costs cause the current account deficit to go up, but thanks to the intermediation OPEC and China, these get recirculated back to the US.

The real problem will occur not because China or OPEC seizes to help recycle dollars, the problem will be that there will not be enough world savings to send back to the US. There is a limit. The US can only get the amount of free savings available from the rest of the world. If the world does not have or does not want to give those savings over, the US dollar will quickly fall in value as marginal supply exceeds marginal demand.

[Kingcoal]

The fiat dollar really doesn't benefit the average working American, in fact, it often times hurts them. The ones who benefit are the bankers and financial crowd, who, for the past twenty years have had an almost free ride to boundless success. Market crash? No problem, Uncle Alan will drop more money from his helicopter. There used to be real crashes, with real, hard, long-term consequences for investors. Not since Greenspan.

The fiat dollar requires that exportation be diminished and importing enhanced. Remember that in a perfect fiat system that the currency must become the central export. How does the fiat dollar hurt Americans? In order to support it, huge sacrifices must be made. Manufacturing must be exported; inflation puts all working people on a treadmill that constantly picks up speed. The financial crowd sits back and counts their millions as working men and women go bankrupt and homeless - just as Thomas Jefferson predicted a central banking system would do.

The dollar has already crashed. It has lost more than half it's value in the last five years. If that's not a crash, what is?

[MountainHiker]

An excellent description Kingcoal. Inflation is just one more tax, or one more way of shifting wealth to the top.

Add to the above problem out of control government spending, with indications of the fed buying huge chunks of that debt and we're getting nailed coming and going. It means they're taxing us into the future, all the while cutting taxes for the wealthy and corporations, leaving the whole load on working stiffs who are making less with constantly dwindling benefits. It can't go on forever, but they'll ride it as long as people accept it.